The Sustainable Development Goals’ (SDGs) new focus on fighting corruption and building institutions has generated quite a stir (including on this blog – see here, here, here, and here). But the Millennium Challenge Corporation (MCC) – a U.S. agency responsible for disbursement of assistance geared toward international development targets – has long been acting against corruption through its effort to achieve the SDG precursors, the Millennium Development Goals (MDGs). Institution-building does not appear among the substantive aims of the eight MDGs. Rather, the MCC made anticorruption central to its work by introducing corruption indices into its process for competitive selection of aid recipients. In brief, the MCC Board of Directors chooses aid-eligible countries by evaluating and scoring candidates countries’ “policy performance” on a number of measures. Crucially, in order to qualify for aid, countries must score above average for their income group on the Worldwide Governance Indicators (WGI) “Control of Corruption” score. The indicator is therefore known as the “hard hurdle.” The Board also assesses corruption trends in its analysis of a country’s ability to reduce poverty and generate economic growth, which, with policy performance, comprises the overall evaluation.
This strategy is known as performance-based lending, and the MCC has employed it to award over $10 billion in grants to nearly 40 countries over the past 12 years. Is the MCC approach a good one? Many critics say no. I say yes. Although it is a strategy that is still evolving, performance-based lending—including the corruption control “hard hurdle”—is not only innovative and effective, but important.